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Sunday, June 26, 2011

The Unintelligent Investor's Definition of the Week: Bar Charts

Bar Chart

Definition from investopedia
A style of chart used by some technical analysis, on which, the top of the vertical line indicated the highest price of a security traded at during the day, and the bottom represents the lowers price. The closing price is displayed on the right side of the bar, and the opening price is shown on the left side of the bar. A single bar like the one below represents one day of trading.

The Unintelligent Investor’s explanation.
If you look at my post about candlestick charts about a month ago, bar charts and candlesticks are fairly similar.

But anyway, let me attempt to draw a bar chart with “Paint” and see how we go.

Bar Chart

Candlestick Chart

So much like a candlestick chart, bar charts tells us the highest, lowest, closing and opening price in one line. Unlike line charts where it is plotted using only closing prices and valuable information is lost.

I do not know what advantages a bar chart or a candlestick chart has over one another but I personally prefer looking at a candlestick chart. Maybe because of the colours lol. I don’t know but I’m more used to it.

The one thing that I didn’t like about the investopedia’s definition is that they said the line represents one day. I think that is untrue. It depends on what scale or timeline you set your chart to. A better way to put it is that a line represents a period. It could be one year, one month, one week, one day, or even one hour.

So which one do you prefer? Bar charts, candlestick charts or line charts? Which one is better and what advantages does one have over another? Let me know! Do drop me comments or send me emails. I read them and reply to them.